SBA Releases Revisions to First Interim Final Rule in Response to the Paycheck Protection Program Flexibility Act
June 11, 2020
On June 10, 2020, the U.S. Small Business Administration (SBA) released Paycheck Protection Program (PPP) – Revisions to First Interim Final Rule. These revisions were released as a response to the enactment of the Paycheck Protection Program Flexibility Act (H.R. 7010), signed into law on June 5, 2020.
H.R. 7010 included several significant changes to the PPP which are summarized below.
|Criteria||Prior Guidance||Current Guidance|
|Covered Period*||8 weeks from date of PPP loan disbursement||The earlier of 24 weeks from date of PPP loan disbursement or
December 31, 2020
|Usage of Funds||A minimum of 75% of forgivable funds must be used on payroll costs with a maximum of 25% used on non-payroll costs||A minimum of 60% of the covered loan amount must be used on payroll costs with a maximum of 40% used on non-payroll costs|
|Extension of Safe Harbor for Compensation and FTE Reductions||Salary or hourly wage reductions or FTE reductions would not reduce forgiveness if restored by June 30, 2020||Salary or hourly wage reductions or FTE reductions would not reduce forgiveness if restored by December 31, 2020|
|Deferral of Loan Payments||6 months from the date of loan origination||The earlier of 10 months after the last day of the Covered Period or when the SBA remits the loan forgiveness funds to the lender|
|FICA Tax Deferral||Employers can defer payment of FICA from the period of March 27, 2020 through date of PPP loan forgiveness – half to be paid in 2021 and the other half paid in 2022||Employers can defer payment of FICA from the period of March 27, 2020 through December 31, 2020 – half to be paid in 2021 and the other half paid in 2022|
|Loan Maturity||2 years||For loans originated on or after June 5, 2020, 5 years. For loans origination prior to June 5, 2020, borrowers and lenders may mutually agree to extend 2-year loans.|
|New Safe Harbors Based on Employee Availability – Rehire/Hiring||FTE reductions would not reduce forgiveness if the borrower can document in good faith the inability to rehire individuals who were employees on February 15, 2020 or the inability to hire similarly qualified employees for unfilled positions by December 31, 2020.|
|New Safe Harbors Based on Employee Availability – Compliance with Health and Human Services, Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration||FTE reductions would not reduce forgiveness if the borrower can document in good faith an inability to return to the same level of business activity as such business was operating before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19|
*For borrowers of PPP loans originated prior to June 5, 2020, there is an election to be made for the covered period to be 8 weeks.
Questions Left Unanswered
While H.R. 7010 brought about many favorable opportunities for borrowers, there are key questions that remain after the release of the Revisions to the First Interim Final Rule:
- Can the Covered Period end prior to 24 weeks if all PPP funds have been expended?
- When can a PPP loan borrower apply for forgiveness?
- For PPP borrowers electing to use the 8-week Covered Period, does June 30, 2020 still apply for the safe harbor?
- Will compensation limitations that were formerly prorated based on 8 weeks now be prorated based on 24 weeks?
The Revisions to the First Interim Final Rule addressed a number of the changes as outlined in the SBA’s press release issued on June 6, 2020. However, Aprio anticipates further instructions for borrowers and lenders to be provided as well as modifications to the SBA PPP Loan Forgiveness Application released on May 15, 2020.
Let Aprio Help
Aprio has established a dedicated PPP loan forgiveness team that is continuously monitoring new guidance from Congress, the SBA, as well as the Treasury and the IRS, to ensure we have the latest information when advising our clients.
If you would like to discuss how to interpret these new requirements and maximize PPP loan forgiveness, contact Aprio’s dedicated PPP loan forgiveness team for a consultation.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.
About the Author
Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.